* FTSE index closes down 0.6 percent
* Banks weigh on PPI capitulation, eurozone debt worries
* Utilities hit by Centrica profit warning
By Jon Hopkins
LONDON, May 9 (Reuters) - Weak banks weighed on Britain's leading share index on Monday, with the sector hit by their capitulation in a fight over loan insurance mis-selling, and by euro zone debt concerns after S&P cut Greece's credit rating.
The British Banking Association said members would not appeal a ruling that they compensate customers wrongly sold payment protection insurance (PPI).
Barclays and HSBC said they will take a combined hit of more than $2 billion for the mis-selling.
Barclays lost 1.3 percent, while HSBC fell 0.5 percent.
HSBC also suffered after Europe's biggest bank posted a 14 percent fall in first-quarter profit, as rising costs offset lower bad debts.
The biggest sector faller was Royal Bank of Scotland, off 2.4 percent. RBS said last week it was too early to estimate the possible PPI impact but settling claims could be "material".
Euro zone credit concerns were heighted as S&P downgraded Greece's long-term credit rating on an increased risk the country will take steps to restructure debt.
At the close, the FTSE 100 was down 34.08 points, or 0.6 percent, at 5,942.69, giving back some of Friday's 1.0 percent gains made when investors were buoyed by U.S. jobs data.
Technical analysis for the FTSE 100 index remained cautious.
"Conditions are ripe for further downside trading action," said James A. Hyerczyk, analyst at Autochartist, with the key to whether the market stalls or accelerates to the downside how it reacts to the recent main bottom at 5,858.00.
"A break through this level is likely to attract fresh selling pressure as it will indicate that short traders are taking control and that trailing stops following the recent strong rally are being executed," Hyerczyk said.
CENTRICA SOLD-OFF
British Gas-owner Centrica was the biggest blue-chip faller, shedding 3.8 percent after saying rising taxes on North Sea oil and gas production would erode profit growth this year and cause it to scale back investments.
Killik & Co., however, said: "Despite, the increased uncertainty over the near-term outlook for earnings, we remain positive on (Centrica) shares and would highlight the strong balance sheet and attractive 4.9 percent dividend yield".
Other utilities suffered with Centrica, with United Utilities down 2.1 percent and Severn Trent down 1.6 percent.
Inmarsat was the top FTSE 100 gainer, up 4.4 percent, after the satellite operator posted a 23 percent rise in first-quarter earnings which, while broadly in line with expectations, prompted Investec to put its price target and "hold" rating under review after recent share price weakness.
Autonomy rose 3.9 percent after Numis upgraded its rating on the software group to "add", saying it was well positioned to deliver upgrades on a 12-month view.
Blue chip peer Sage Group rose 1.6 percent, while mid cap software firm Misys added 8.4 percent as Credit Suisse reinstated its "outperform" rating on the stock. (Editing by Dan Lalor)